Ts1 -EUR/USD - support in focus ahead of ECB Interest Rate Decision

With rates dropping, the housing market is seeing competition between mortgage lenders heat up. On Friday 13th, Nationwide, HSBC, NatWest, and TSB all cut their fixed-rate mortgage offers, (TSB for the second time in a week). Although the Bank of England (BOE) is expected to hold interest rates at 5% when it makes its September announcement on Thursday, analysts are expecting the battle for new borrowers to bring further cuts as lenders try to entice first time buyers. Brokers however are encouraging borrowers to act now claiming that the determination not to miss out on better deals could be leaving them at risk of having to take more costly variable rate options.

For more than a decade, rates have been higher than normal and incredibly volatile. Currently, the average interest on two-year and five-year fixed-rate deals are calculated to be 5.49% and 5.15% respectively. In January 2022 they were both below 3%. Once the deal expires, borrowers replace it with a new one. The best rates go to loan-to-value deals, (borrowing a small portion of the value of the home), a few of which are returning to rates not seen since Liz Truss’ mini-budget in September 2022 sent rates rocketing.

With 1.6 million fixed-rate deals set to expire this year, some are still expecting their mortgage payments to rise, despite the recent cuts. In July, the BOE warned that 3 million households could expect to see their payments go up, with approximately 400,000 facing a ‘very large’ jump in their payments. The BOE’s cut in August slowed the rate of increase, but brokers are urging those looking to remortgage to move sooner rather than later. Fear of missing out on better deals is resulting in some borrowers stalling their decisions. Brokers point out that most lenders are trying to seduce first-time buyers rather than those looking to remortgage and the frenetic nature of the market meant that while further cuts were possible for remortgagers, particularly when lenders start looking to their end of year targets, they were not certain.

 When fixed deals expire, borrowers are automatically moved onto their lender’s standard variable rate – currently averaging 7.99% interest across the major lenders, 2.5% higher than a new 2-year deal. The trend for lenders to make small cuts each week, rather than larger reductions at one time, is encouraging those looking to remortgage to take greater risk with their payments – a risk that could back fire without careful monitoring.

 

(Sources: bbc.co.uk)